Spot zinc concentrate TCs swing from highs to lows as key mining regions hit lockdown

Zinc concentrate treatment charges (TCs) are dropping in China with smelters and traders scrambling to cover shortfalls in supply feed left by shuttered mines.

Countries across South America have brought in stringent lockdown measures to combat the spread of the Covid-19 virus with top exporters Peru (2 million tonnes – 2019) and Bolivia (1.1 million tonnes – 2019) among the most restrictive to business operations.

This, combined with shutdowns at other significant production sites, comes at a time when Chinese smelters are beginning to return to the market for tonnages as constraints on people movement and factory operations ease in the country.

Fastmarkets assessed zinc spot concentrate TC, cif China, at $255-270 per tonne – a one-year low and down from $280-315 in February, which was close to a multi-year high.

“It’s turning into a sellers’ market, but it’s difficult to say how stable that is,” a trading source told Fastmarkets.

“Now you have a contango and low interest costs so it’s not difficult to keep stuff on stock. Why would you sell high now?” the source said.

Across March, deals for clean concentrates ticked further and further south. Market participants who sold concentrates with TCs at $270-275 per tonne early in the month are now offering at $250 per tonne, although Fastmarkets did not receive seaborne deals lower than $255 per tonne.

“Chinese smelting capacity already came back after the logistics contain lift, while a small proportion of mines have not resumed due to cost pressure,” a smelter source told Fastmarkets.

Mines declare shutdowns

The majority of mining shutdowns are focused in Peru and Bolivia, both key exporters of zinc and lead concentrates.

In Bolivia, which is enforcing a strict curfew at night and requiring permits for any travel, Sumitomo Metal Mining has shut its San Cristobal silver-lead-zinc mine.

Bolivia has a host of other smaller mines but exports have ground to a halt with the travel restrictions as well as border closures into Peru and Chile meaning it has no means of trucking goods to sea ports.

Meanwhile in Peru, Pan American Silver, Volcan, Hochschild, Casapalca, Buenaventura, Los Quenuales, Santander and Sierra Metals have all reported production cuts or total closures.

Nexa’s Cajamarquilla smelter is operating at roughly 50%, Fastmarkets understands.

One additional factor is port logistics; assaying company Alfred H Knight told clients in an email on March 17 that it would not be providing weights, sampling or moisture determination services from Peruvian ports as a result of the national emergency.

“If you can’t sample material as it’s being shipped, how do you know what you’re buying?” a third trading source said.

Similarly, Alex Stewart International has shut its assaying lab in Lima until further notice, Fastmarkets understands.

“You don’t have surveyors, you cannot sample, you cannot process samples and even if you could you can’t ship the documents because DHL, FedEx and all the courier services are all offline,” a fourth trader said.

Elsewhere, Caribou, Guemassa, Rampura Agucha, Silver Tip are among other mines globally facing temporary closures.

The shuttering of a slew of mines across South America has also tightened the spread of market deals and offers. Where material with even small impurities or grade deficiencies formerly traded as much as $60 per tonne above levels for prime clean brands, this has slimmed to more like $15 currently.

Chinese smelters back for cif tonnes

In China’s domestic market, Fastmarkets’ assessment of zinc concentrate TCs, spot, delivered North China, dropped to 5,900-6,200 yuan ($831-874) per tonne from 6,300-6,400 yuan one month ago.

Fastmarkets’ assessment of zinc concentrate TCs, spot, delivered South China, fell to 5,800-6,000 yuan per tonne from 6,100-6,300 yuan on February 28. 

“Domestic demand is there, but there is inadequate supply from the domestic mines,” a zinc concentrates trader said.

China imported 692,794 tonnes of zinc concentrates in March, up by 17.3% from 590,728 tonnes in January-February 2019, according customs data.

Zinc, lead benchmarks settled

Declining spot terms seem to have spurred a conclusion to annual benchmark talks between miners and smelters.

Fastmarkets broke the news of a $299.75-per-tonne settlement between Korea Zinc and Teck Resources on Tuesday March 24.

Sources have subsequently said that Glencore agreed on the level with Teck the Friday prior, with Asian smelters following this time.

The benchmark TC, which has zeroed scales, is a 12-year high and came as a surprise to some in the market given the current tightening supply outlook.

“If you are following this benchmark and you have a very nice clean quality, low silver, it seems to be a little bit high,” a producer source said. “But if you have a quality that China doesn’t like, if it’s high silver or gold or other elements then it’s fair enough.”

Still, the lack of price participation gives miners all the upside if London Metal Exchange prices rise after the exchange’s cash contract hit $1,742 per tonne on March 19, the lowest since April 2016.

March also saw annual contracts for lead concentrates come to light. At levels of $175 / 1.50 cents for Red Dog and $182.50 / 1.50 cents for Cannington, both the low-silver and high-silver terms are roughly equivalent when taking into account the additional silver content at Cannington.

The deals represent a marked increase from those agreed in 2019 when Cannington sold for $98 per tonne/$0.60 per oz, with Red Dog at similar numbers.

The higher terms come as both miners and smelters face challenges in a low-price environment for sister metals lead and zinc, along with silver, which forms a large part of revenues for many teams.

On Wednesday March 25, European lead smelter Recylex said it would shut down all lead production due to low prices and slack demand from automotive clients who have closed plants due to the Covid-19 virus outbreak.

Spot lead TCs continue uptrend

Lead TCs continued to climb owing to the high import arbitrage loss for units.

The import loss for bringing lead units into China ranged between 731 yuan and 2,550 yuan in March – still a hurdle to the import interests for lead concentrates.

Fastmarkets assessed lead spot concentrate TC, high silver, cif China, at $185-205 per tonne on March 27, up $5 from $180-200 per tonne the previous month.  

The corresponding assessment for lead spot concentrate TC, low silver, cif China, was at $170-180 per tonne, up from $160-180 per tonne in the same comparison. 

China’s combined imports of lead concentrates in January and February were 173,895 tonnes, down by 17.2% from 210,122 tonnes in the corresponding period of 2019.